Airline Biz Blog

S&P says airlines may be hurt by swine flu outbreak

Standard & Poor’s Ratings Service is warning that airlines may see the same damage to their business from the swine flu outbreak as Pacific Rim airlines suffered during the SARS outbreak in 2003.

The spread of swine flu “raises the risk, in the view of Standard & Poor’s Ratings Services, that airlines could suffer a steep drop in international traffic,” S&P said Monday.

S&P noted that “fears about SARS triggered brief but substantial declines in passenger traffic and caused financial damage to certain Asian carriers, such as Hong Kong’s Cathay Pacific Airways Ltd. and had lesser but noticeable effects on some airlines in other regions.”

SARS, as you might remember, was the acronym for “severe acute respiratory syndrome.” Those airlines were also hurt by bird flu.

Says S&P managing director Phil Baggaley:

“Though swine flu has not yet caused health problems on a similar scale, we believe airlines are at risk of suffering reduced traffic because of government-imposed quarantines and travelers’ fears.”

With the disease mostly hitting Mexico, airlines there might be the hardest hit. S&P said.

Among U.S. carriers, Continental Airlines “has the greatest potential exposure, although it’s not a large one, in our view: its Latin American operations as a whole accounted for 14% of total revenues in 2008, with flying to Mexico only part of that. We see no rating impact on Continental at this time,” S&P said.

If the disease spreads to other countries and continents, the impact on travel and airlines would also spread. The issue isn’t just that airlines may see fewer people flying, but that the outbreak comes at a time when airlines were already hurting financially, the ratings service said:

Airlines worldwide are already facing significant declines in international travel, particularly since late 2008, because of weak global economic conditions. The Air Transport Association, the U.S. airline trade group, reported that passenger traffic on international routes fell almost 13% in March 2009 (compared with March 2008 levels), and passenger revenues fell even more, by 22%, because first- and business-class traffic, with higher average fares, fell disproportionately. Thus, even if the effect of swine flu on airlines remains much more limited than that of SARS (as it is currently), it comes at a time when their revenues and earnings are already under pressure. Standard & Poor’s will continue to monitor the potential impact of swine flu on U.S. and other rated airlines.

Offering a similar assessment is Michael Linenberg of Merrill Lynch:

“The news of Mexico’s outbreak of deadly swine flu is likely to pressure U.S. airline stocks in the near-term as investors fear a replaying of Asia’s SARS episode
which impacted the global sector in the spring of 2003 (of course, the impact was
most pronounced in Asian airline stocks). Asian airline share prices were down
as much as 25% – 30% over a two-month period beginning in early March 2003,
however, the stock action was further exacerbated by Gulf War II which
commenced in the latter part of March.”

Linenberg cited Continental, American Airlines, Air Canada, Delta Air Lines and United Airlines as the carriers that would be perceived to have the biggest exposure to swine flu-related damage.

Monday trading on U.S. airline shares reflected the market’s unease:

AirTran

$6.90

-6.6%

Alaska Air Group

$16.55

-7.1%

AMR

$4.70

-13.3%

Continental

$11.08

-16.4%

Delta

$6.75

-14.3%

Southwest

$6.88

-9.4%

UAL

$5.50

-14.3%

US Airways Group

$4.00

-17.4%

Editor Picks

Ad:TopLeftBlog

Ad: Position1

Archives Title

Archives

ArchivesAbout this blog

About this Blog

Terry Maxon writes about items of interest to travelers and the aviation community.